Stocks Tumble as Wall Street Flags Sky-High Prices: Markets Wrap

(Bloomberg) — The global stock rally hit a speed bump as earnings from artificial-intelligence bellwether Palantir Technologies Inc. failed to impress and Wall Street chiefs warned of a potential correction due to rich valuations.

Contracts for the S&P 500 fell 1.1% after the US benchmark posted a modest gain on Monday, even as more than 300 of its members declined. Nasdaq 100 futures tumbled 1.4%, with Palantir declining more than 4% in extended trading.

European shares dropped 1.2%. Asian equities retreated as well, with a gauge of technology companies set for its biggest drop since September. The dollar held steady near its highest level since August as Federal Reserve officials offered mixed signals on the path of interest rates.

Morgan Stanley’s Ted Pick and Goldman Sachs Group Inc.’s David Solomon were among Wall Street chiefs at a summit in Hong Kong warning that markets could be due for a major pullback. Their caution comes as investors grow uneasy with stock prices after the S&P 500 surged more than 40% from April lows, fueled by a frenzied rally in tech megacaps tied to the AI boom.

Corporate earnings are strong but “what’s challenging are valuations,” said Mike Gitlin, president and chief executive officer of investment manager Capital Group, on Tuesday during a financial summit organized by the Hong Kong Monetary Authority.

Palantir failed to impress even after the company raised its annual revenue outlook to $4.4 billion and outpaced analyst estimates for third-quarter sales.

Investors have sent the firm’s shares up more than 150% so far this year, closing Monday at a record $207.18. The company had a price-to-sales ratio of 85 as of Friday — the highest in the S&P 500 Index.

“On Palantir, there’s been quite a lot of ‘sell-on-the-news,’ particularly for stocks which had outperformed prior to their earnings,” said Karen Georges, a fund manager at Ecofi Investissements in Paris. “When you have lofty valuations, it’s really not surprising to see harsh market price action.”

What Bloomberg strategists say…

Investors appear to be needing fresh signals to restore faith in the bull market, which began stalling last week. Indeed, they are concerned that market leadership is concentrated. Even a small wobble in the mega-cap growth story or an unexpected macro headwind can trigger outsized moves lower.

— Mark Cranfield, MLIV strategist. For full analysis, click here.

Elsewhere, gold edged lower for a third consecutive session. Treasuries rebounded, while oil fell as the market weighed OPEC+’s decision to pause output hikes. The yen strengthened after Japanese finance minister issued another set of verbal warnings on currency movements.

Also weighing on the negative sentiment Tuesday was increased uncertainty over the Fed’s policy outlook.

A flurry of US central bank officials offered different views Monday with Chicago Fed President Austan Goolsbee saying he’s more concerned about inflation than the job market. Earlier, Governor Lisa Cook said she sees the risk of further labor-market weakness as greater than the chance that inflation will pick up.

Her comments echoed remarks from her colleagues who were equally noncommittal about whether the central bank should deliver a third straight rate reduction when policymakers convene in December.

San Francisco Fed President Mary Daly said officials should “keep an open mind” about the possibility of a December cut. Governor Stephen Miran noted policy remains restrictive.

“With US data softening and Fed officials keeping policy optionality alive, investors are reassessing positioning rather than chasing risk,” said Billy Leung, an investment strategist at Global X Management.

Corporate Highlights:

BP Plc’s profit exceeded expectations with operational improvements and higher oil and gas production outweighing lower prices, as the company’s turnaround plan builds momentum. Starbucks Corp. is selling a majority stake in its China unit to private equity firm Boyu Capital for $4 billion to help accelerate its coffeehouse business in the country. Netflix Inc. is in talks to license video podcasts distributed by iHeartMedia Inc. as it looks to compete head-on with YouTube, according to people familiar with the conversations. Saudi Aramco reported profit that beat analysts’ estimates as a boost in production outweighed the impact of weaker oil prices. Royal Philips NV’s order intake climbed 8% in the third quarter amid robust demand for the manufacturer’s medical devices in North America. Telefónica SA will slash its 2026 dividend by half as the company’s Chairman Marc Murtra rolls out a new strategy. Nintendo Co. raised its Switch 2 sales forecast on Tuesday, bolstering confidence that the record-breaking console will sustain its strong start. Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 1.2% as of 8:16 a.m. London time S&P 500 futures fell 1.1% Nasdaq 100 futures fell 1.4% Futures on the Dow Jones Industrial Average fell 0.8% The MSCI Asia Pacific Index fell 0.9% The MSCI Emerging Markets Index fell 1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1527 The Japanese yen rose 0.5% to 153.44 per dollar The offshore yuan was little changed at 7.1268 per dollar The British pound fell 0.2% to $1.3112 Cryptocurrencies

Bitcoin fell 2.8% to $103,922.42 Ether fell 3.6% to $3,471.28 Bonds

The yield on 10-year Treasuries declined two basis points to 4.09% Germany’s 10-year yield declined two basis points to 2.65% Britain’s 10-year yield declined four basis points to 4.40% Commodities

Brent crude fell 0.9% to $64.30 a barrel Spot gold fell 0.2% to $3,992.96 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Mark Cranfield, Cathy Chan, Joanna Ossinger, Abhishek Vishnoi and Julien Ponthus.

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